on writ of certiorari to the united states court
of appeals for the ninth circuit

[January 24, 1994]

Justice Stevens , dissenting.

[n.1]
In my view, a
State tax that fell upon railroad property, but from
which comparable non railroad property was exempt,
would clearly implicate that prohibition. The Court errs
in holding that such arrangements are not even subject
to challenge under subsection (b)(4).

Because subsection (b)(4) by its terms bars any tax
that "discriminates" against rail carriers, it is not
surprising that the Courts of Appeals have held that the
provision applies to revenue measures that discriminate
by imposing taxes on railroad property and exemptingsimilar property owned by others.
[n.2]
While those courts
(and the District Court and Court of Appeals in this
case) have differed on precisely how to decide whether
a wholesale exemption unlawfully "discriminates" and
thus gives rise to liability , none has taken the position
accepted by the Court today that a claim predicated on
discriminatory exemptions is not cognizable under
subsection (b)(4).

As the Court explains, ante at 10, subsection (b)(4)
does not contain a specific prohibition against imposing
on railroads an ad valorem tax from which other
property owners are exempt. That omission, of course,
does not answer the question before us: whether the tax
that Oregon has imposed "discriminates against a rail
carrier" within the meaning of subsection (b)(4). A State
might discriminate against a disfavored class of taxpayers in a variety of ways. The absence in the 4-R Act of
a provision specifically addressing exemptions is no more
significant than the absence of a provision addressing
deductions, credits, methods of collecting or protesting
state taxes, or penalties. Surely a state tax law thatallowed a substantial tax deduction for all taxpayers
except rail carriers would readily be recognized as
discriminatory. That conclusion would not be affected by
the fact that the anti discrimination statute does not
speak specifically to deductions. Indeed, the Court
suggests that an exemption for all taxpayers except rail
carriers would make the tax discriminatory. See ante,
at 13.

Rather than addressing every means that might be
devised to accord discriminatory tax treatment to rail
carriers, Congress specified two familiar methods
(differential rates and assessments) and then included a
general provision designed to block other routes to the
same end. In my opinion, it is anomalous to read §
11503(b) to prohibit even minor deviations in rates or
assessments, but then to allow States to put manifestly
disproportionate tax burdens on railroads by exempting
most comparable property. Both the text of subsection
(b)(4) and its evident purposes convince me that Congress intended to bar discrimination by any means,
including exemptions.

In Davis v. Michigan Dept. of Treasury, 489 U.S. 803
(1989), this Court held that a State's exemption of a
limited class of residents violated a general statutory
prohibition against discriminatory taxation (4 U.S.C. § 111) that made no specific reference to exemptions.
While I disagreed with the Court's conclusion that the
limited exemption at issue could fairly be characterized
as discrimination against the protected class, Davis
surely demonstrates that an exemption, even if not
expressly prohibited, may support the conclusion that a
tax is discriminatory. Indeed, tax exemptions may make
a tax unconstitutionally discriminatory. See, e. g.,
Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 273
(1984); Armco Inc. v. Hardesty, 467 U.S. 638, 642-646
(1984). I see no reason why they should be totally
ignored when Congress has expressly prohibited "discrimination" against a particular kind of interstate
enterprise.

The Court puts great stock in the difference between
the specific and strict bar against discriminatory tax
rates and assessments in subsections (b)(1) (b)(3) and
the open ended language of subsection (b)(4), which
speaks only tersely of "discriminat[ion]." As the Court
explains, the definition of "commercial and industrial
property" that is applicable to subsections (b)(1)%(b)(3) is
best read to embrace only property that is taxed, rather
than exempted. If we were to accept the Carlines'
position, the Court reasons, subsection (b)(4) would
render the earlier provisions redundant, and would "nullify" the limitations Congress placed on the rate and
assessment provisions. Ante, at 9. I disagree.

The ban on discriminatory rates and assessments
targets two patent and historically common forms of
discrimination. In order to find discrimination in rates
or assessment ratios, a court need only compare the
rates and assessments applicable to railroads to the
rates and assessments of other owners of comparable
property. That inquiry would be complicated indeed if
the courts were required to divine the "rates" and "assessments" governing property that is exempt from
tax. It is not surprising, then, that the strict bars
against disparate rates and assessments exclude from
the comparison class property that is not taxed at all.

Congress's exclusion of exempted property from the
comparison class for purposes of subsections (b)(1) (b)(3)
does not determine the scope of subsection (b)(4), for
that provision does not depend on the limited definition
of "commercial and industrial property," that governs its
neighbors. Reading subsection (b)(4) to require judicial
scrutiny of state exemption schemes creates no disharmony with subsections (b)(1) (b)(3) unless one assumes
that the test of "discrimination" under subsection (b)(4),
like the per se rules against differential rates andassessments, prohibits all but the most minor differentials in tax treatment between railroad property and
owners of similar property. That assumption is unwarranted.

The statute before the Court today (like the statute it
construed in Davis) does not contain a definition of the
term "discrimination," but that familiar concept and the
policies of the 4-R Act provide guidance. Like the
statute at issue in Davis, the 4-R Act protects taxpayers
who often have little voice in the policy decisions of the
taxing State, and whose situation makes them likely
targets for unfavorable treatment.
[n.3]
The prohibition of
discrimination should be read to give effect to those
concerns, but it need not be read more broadly. A
sensible test for prohibited discrimination--focusing on
whether the protected class is being treated substantially less favorably than most similarly situated persons--would leave the States room to employ exemptions
without falling afoul of subsection (b)(4).

As amicus the Solicitor General suggests, a discrimination standard allows the States to impose disparate tax
burdens when the disparity is supported by some
legitimate difference between the exempted non railroad
property and the taxed railroad property.
[n.4]
In my view,
an exemption for a small minority of the resident
taxpayers would not warrant a conclusion that prohibited "discrimination" has occurred. See Davis, 489 U. S.,
at 819-823 (Stevens, J., dissenting). Because subsection (b)(4) merely protects railroads from discrimination,
rather than conferring on them a right to be treated like
the most favorably treated taxpayer, a violation would
not be established when the tax paid on railroad
property is not materially greater than the tax imposed
on most comparable property.
[n.5]
But surely a tax imposed on rail carriers is not saved from discrimination
merely because some other kind of enterprise (e.g., motor
carriers) is also subject to taxation.

The evident purpose of this part of the 4-R Act, as
the Court recognizes, is to protect a class of interstate
enterprises that has traditionally been subject to
disproportionately heavy state and local tax burdens.
This is an area in which State authority has always
been circumscribed, most prominently by the Commerce
Clause itself. Subsection (b)(4) plainly requires States
to readjust their tax arrangements to the extent those
arrangements "discriminate." I cannot agree that
federalism "compels" us to read subsection (b)(4) as
inapplicable to exemption arrangements. See ante, at
11.

Federalism concerns would weigh more heavily in
favor of Oregon's position if, as the Court suggests,
ante, at 10-12, reading subsection (b)(4) to apply to
exemption schemes would require States to choose between exempting railroads or eliminating tax exemptions
across the board. But as I have explained, such a
reading is by no means required. Because the statutory
term "discrimination" permits the States greater flexibility to employ exemptions than do the bans on disparaterates and assessments, the Court's concerns about imposing onerous choices on States are overstated.
[n.6]
Moreover, an exemption that is meaningfully available to
railroads--as in the Court's example of an exemption for
funds spent on environmental clean up--would not make
a tax "discriminatory" merely because the exemption
may be more useful for some other businesses than it is
for railroads. Cf. Burlington Northern, Inc. v. City of
Superior, 932 F.2d 1185, 1187 (CA7 1991) (invalidating
tax "imposed on an activity in which only a railroad or
railroads engage").

The Court appears to hedge against its position that
subparagraph (b)(4) flatly does not apply to taxes and
exemption schemes that operate to burden railroads
disproportionately. Thus, the Court intimates that the
State ad valorem tax must, in order to escape scrutiny
under subsection (b)(4) , be "generally applicable," ante,
at 1, 6, and that a scheme that taxed railroad property
but exempted all non railroad property might be unlawful because it would not be a bona fide "exemption."
See ante, at 13-14. If I were convinced that Oregon's
ad valorem property taxes were generally applicable, I
would agree with the Court's disposition of this case.
The narrowness or breadth of the exemptions, and
correspondingly the even handed or discriminatory nature of the tax on railroads, goes to whether a subsection (b)(4) claim has merit, not to whether it is cognizable. The statute provides no basis for prohibiting the
exemption of one hundred percent of non railroad property but allowing the exemption of, for example, ninety
percent.

I recognize that application of the statutory "discrimination" standard will sometimes involve problems of
line drawing, and that discriminatory exemptions raise
special difficulties. But, in my view, the statute requires courts to grapple with those difficulties. I would
remand the case to the Court of Appeals to give it an
opportunity to resolve the parties' disputes about the
extent of any disparate burdens imposed on rail carriers
by Oregon's ad valorem tax and to review the discrimination issue in accordence with the considerations set
forth in this opinion.

Accordingly, I respectfully dissent.

Notes

1
As originally enacted, subsection (b)(4) prohibited the States from
imposing "any other tax which results in discriminatory treatment of a
common carrier by railroad[.]" 4-R Act, §306(1)(d), 90 Stat., at 54.
Pursuant to a recodification in 1978, the current version of subsection (b)(4) speaks of "another tax that discriminates against" a rail
carrier. Congress specifically provided that the 1978 recodification "may not be construed as making a subsequent change in the laws
replaced." 92 Stat., at 1466.

2
In addition to the Ninth Circuit's decision in this case, 961 F.2d
813, 818-820 (1992), see Department of Revenue v. Trailer Train
Co., 830 F. 2d 1567, 1573 (CA11 Cir. 1987) (provision targets "discrimination in all its guises" and "requires consideration of tax
exemptions in determining whether there has been discriminatory
treatment") (citation and internal quotation omitted); Oglivie v. State
Bd. of Equalization, 657 F. 2d 204, 209-210 (CA8) (history of
provision demonstrates that "its purpose was to prevent tax discrimination against railroads in any form whatsoever," including exemption of non railroad property), cert. denied, 454 U.S. 1086 (1981).
Only the Virginia Supreme Court has reached the contrary conclusion, see Richmond, F. & P. R.R. v. State Corp. Comm'n, 336 S.E.2d
896, 897 (Va. 1985), and it did so on a basis that I do not understand the Court to accept today--that because ad valorem property
taxes are treated in the first three subsections, an ad valorem
property tax may never be attacked as discriminatory under the
subsection (b)(4).

3
Railroads' high rates of fixed investment and their immobile
assets leave them less able than other interstate enterprises to
restrain State taxation by threatening to pull up their stakes and
leave. See Burlington Northern R.R. v. City of Superior, 932 F. 2d
1185, 1186 (CA7 1991).

4
A State might, for example, be able to defend an exemption by
showing that the exempted class was subject to an equivalent tax to
which railroads were not.

5
For similar reasons, the Court of Appeals erred when it held that
the remedy for a discriminatory exemption scheme is a refund of the
entire tax paid by the railroad. See 961 F.2d, at 823. To remedy
unlawful discrimination under subsection (b)(4), a State need refund
only the difference between the tax collected from the railroad and
the average tax imposed on owners of comparable property.